From: Vincent Cate <vince@offshore.com.ai>
Date: Mon, 2 Jun 1997 09:34:03 +0800
To: cypherpunks@toad.com
Subject: Economist: The disappearing taxpayer
Message-ID: <Pine.LNX.3.95.970601210030.2637E-100000@online.offshore.com.ai>
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Cypherpunks views of the future in mainstream media.  Kind of fun. 
The following is from:

     http://www.economist.com/issue/31-05-97/ld4660row.html

      --  Vince
          http://www.offshore.com.ai/vince/


                              [The Economist]

                         The disappearing taxpayer

"THE art of taxation", advised Louis XIV's treasurer, Jean-Baptiste
Colbert, "consists in so plucking the goose to obtain the largest amount
of feathers, with the least possible amount of hissing." His observation
remains true, except for one big change. Unlike geese, people in the 17th
century did not know how to fly. Now they can. 

     In the coming decades electronic commerce -- combined with the growing
ease with which firms can shift their operations from one part of the world
to another -- will make it ever easier for people to flee countries where
taxes are high, or to evade tax altogether by doing their business in
cyberspace. The hole this will leave behind is already worrying many
governments (see ). Some argue that it is "unfair" for others to lure their
firms away by levying lower taxes, and are pushing for the harmonisation of
taxes. Another new idea is to impose a tax on electronic transactions. But
although governments everywhere will have to start thinking -- and soon --
about how to raise taxes in the newly weightless global economy, both
remedies are flawed.

A question of sovereignty . . .
Those who advocate harmonisation say that the alternative is a "race to the
bottom", as governments sacrifice social spending on the altar of
competitiveness. But different countries have different spending needs and
make different judgments about the proportion of income to devote to
transfers and public services. Indeed -- remember "no taxation without
representation" -- such decisions lie at the heart of modern politics. That
is why even in the EU, a relentless prober of the boundaries of national
sovereignty, proposals to harmonise taxes have made little progress so far.

     A recent proposal from a panel of economists to make up for the tax
losses caused by electronic commerce by introducing a "bit tax" on flows of
electronic information is similarly defective. It is hard to see how a
single country or even a group might impose such a tax without simply
forcing on-line transactions offshore. But in so far as it succeeded, such
a tax might just hamper the adoption of information technology, depriving
people and businesses of its great productivity benefits.

     So if neither of these ideas is any good, why not do nothing? It is
true that the full impact of electronic commerce and globalisation on
governments' taxation powers is still some way off. The fact that tax
levels vary from 60% of GDP in Sweden to 32% in America suggests that even
in a globalising economy governments are still able to make distinctive
fiscal choices. However, every so often a big Swedish company -- Ericsson
most recently -- threatens to decamp because egregious income taxes make it
difficult to recruit skilled employees. America's corporate taxes have
withered to insignificance because of the mobility of firms. At present
these are merely straws in the wind, and hardly new ones, but there is no
doubt which way the wind is blowing.

     Some competition between tax regimes may be a good thing, if it
encourages governments to show more discipline in their tax and spending
policies. But one day globalisation and electronic commerce could make a
sizeable dent in a country's total tax revenues. And these forces have
already made a big impact on the way the burden of taxes falls on a
population. This is what rules out the option of inaction.

 . . . and of equity
Not all firms, workers and products are equally mobile. Entrepreneurs,
scientists, tennis players and film stars may be able to uproot themselves
in search of lower taxes, but the average worker is still unlikely to
become a tax refugee. Although this may reassure governments, it implies
that governments will eventually have to cut taxes on the most mobile
factors of production, notably skilled workers, while taxes on less mobile
unskilled workers will have to rise. Over the past decade or so taxes on
capital have already fallen sharply while those on labour have risen. In
future it will be harder to tax firms or high-earners at high rates because
they are the most mobile. The implication is that unskilled labour will
have to bear a greater burden.

     If they are to mitigate this change while maintaining their tax
revenues, governments need to speed up tax reforms that are needed anyway
to improve economic efficiency. In most countries at present, exemptions
and loopholes distort the allocation of resources. Broadening the tax base
by scrapping exemptions such as mortgage interest relief and zero rates of
VAT on certain goods and services would allow a much lower rate of tax and
therefore reduce the incentive for both tax evasion and migration. Less
complex reporting requirements would reduce another incentive to hide from
the taxman.

     A second needed change is to shift the tax base from income towards
consumption and property, which is both immobile and hard to hide. Even
consumption is becoming more mobile. But a consumption tax would both
remove the present disincentive to save and help to collect taxes from tax
dodgers (even those whose income comes from invisible Internet sales have
to spend it). Having changed so much else in the world economy,
globalisation and information technology will inevitably undermine the way
governments raise taxes. Reforming the tax system to plug the hole is going
to be hard. Not reforming it would be even worse.

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